Frank Cowell: Microeconomics The model Two goods (1,2) and two traders (Alf, Bill) Two goods (1,2) and two traders (Alf, Bill) Given resource distribution Given resource distribution  endowments of two goods are such that Bill owns all good 1  Alf: [R 1 a, R 2 a ] = [0, R 2 a ]  Bill: [R 1 b, R 2 b ] = [R 1, R 2 b ]  R 2 : = R 2 a + R 2 b Trading outcomes described by allocation Trading outcomes described by allocation  vector of consumptions  Alf: [x 1 a, x 2 a ]  Bill: [x 1 b, x 2 b ] Use good 2 as numéraire Use good 2 as numéraire  price of good 1 is p := p 1 /p 2 Assume materials balance condition satisfied with equality Assume materials balance condition satisfied with equality  x 1 a + x 1 b = R 1  x 2 a + x 2 b = R 2  permits use of the Edgeworth box diagram
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